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Oxford Health To Raise Rates And Cut Fees

Oxford Health Plans, the troubled company that once held great promise for the future of managed care, is warning doctors that it must raise premiums and reduce how much it pays doctors and hospitals in order to make money.

In a letter sent to doctors on Monday, Norman C. Payson, Oxford's new chief executive, outlined the steps the company plans to take. Oxford is considering shrinking the size of its hospital network and will try to more aggressively discourage members from going to doctors outside its network.

Oxford would not comment on its specific plans, and it remains unclear how drastic the changes will be. ''Its significance will depend on the degree,'' said Bob Braddick, a benefits consultant for William Mercer in New York.

''They have significant business problems,'' he added. ''They have to address these problems.''

While the steps outlined by Dr. Payson had been expected, they are the clearest indication to date of Oxford's strategy.

They also come at a critical time. Many employers will soon decide whether to offer Oxford to their employees next year, and many employees will have the opportunity to switch plans this fall. Oxford risks losing members if it raises premiums by too much or makes its popular Freedom plan significantly less appealing.

Oxford, once the darling of Wall Street and consumers, seemed to have perfected the best of both worlds in its health plan by offering members the choice of going to any doctor at a reasonable price. Then it stunned investors in October with the news that it expected sizable losses. The company had underestimated the cost of delivering care to its two million members.

Oxford has spent the last year trying to untangle the chaos at the company, which resulted in a $291 million loss for 1997. As part of its turnaround plan earlier this year, the company raised $710 million in capital from private investors and brought in a new management team.

But Dr. Payson's letter also seemed to signal that Oxford has a long way to go before it returns to profitability. ''Oxford is still losing significant amounts of money in its health plans,'' Dr. Payson said in the letter. ''If we took no action, in time we would be in serious financial difficulty again. Therefore, we must initiate measures now to stem losses with a target of reaching break-even within 12 months.''

The company's stock, which has been bludgeoned by news of the company's losses, hit a 52-week low yesterday. Investors appear to be anticipating more bad news in the coming weeks, when the company releases its second-quarter results. Its shares closed down $1.3125, to $12.50.

In outlining Oxford's strategy, Dr. Payson said that the company ''by necessity, must raise rates.'' He said that the company had already started to raise premiums for some employers, which are ''for the most part staying with Oxford.''

Benefits consultants say that the rate increases so far have varied significantly from employer to employer. Henry Moyer, a benefits consultant at Hirschfield, Stern, Moyer & Ross, said that while some clients' premiums had not changed, Oxford had recently raised rates for one client by 32 percent. That client, which Mr. Moyer would not identify, switched plans.

And while some employers have been told to expect a premium increase of about 10 percent, many are still waiting for Oxford to provide exact figures. ''Everyone's waiting,'' said Barry A. Barnett, a principal at Kwasha HR Solutions, a unit of Price Waterhouse Coopers. ''There is a lot of bated breath out there.''

In discussing the effect on doctors, Dr. Payson said Oxford's goal ''is to change only those fees we need to and, in general, to only affect fees modestly.'' But doctors, especially if they are still owed money from claims they say are lost or have been mishandled, may not react well to any sharp reduction. Consultants say some doctors may leave the network.

''This could have a serious impact on many providers in this area,'' said Dr. Charles Aswad, the executive vice president of the Medical Society of the State of New York, noting that doctors are under pressure by many managed-care companies to accept lower reimbursements. While he said the letter's ''general intent is positive,'' he worried about the size of any reductions.

Dr. Payson also indicated that Oxford's ''net hospital costs have gone up dramatically'' in New York State, home to most of Oxford's members, because of the recent New York Health Care Reform Act. Oxford ''can no longer afford to absorb these costs nor pass them on directly or indirectly to employers, doctors or patients,'' he said, and will be negotiating with hospitals to reduce those costs. He said the company would consider reducing the size of its hospital network or develop a preferred network.

The new legislation, which requires plans to help share the cost of graduate medical education and uncompensated care, should have had no effect on Oxford's costs, according to Patricia Wang, an executive at the Greater New York Hospital Association. ''They really should have been paying this,'' she said.

Oxford also appears to be considering some changes to its Freedom plan. ''Our primary initiative for our patients is to encourage them more and more to stay 'in-network,' '' Dr. Payson explained, although he provided no details in the letter. Oxford could raise the size of the deductible it charges members who go outside its network or reduce the amount of their bills it reimburses.

Dr. Payson also made it clear that Oxford planned to continue to move away from certain businesses. ''We learned that Oxford cannot be all things to all people,'' he said. ''We need assistance in the challenging governmentally financed segments of our population, Medicare and Medicaid.''

The letter went out as investors are growing increasingly nervous about the company's financial results. Analysts say they expect a sizable loss. Anne Anderson, an analyst at the Atlantis Investment Company in Parsippany, N.J., who continues to bet that the stock will drop further, forecast the company would report a second-quarter loss of at least $100 million.

Even if the company takes the steps outlined by Dr. Payson, Oxford has yet to prove it can offer a plan that is both popular and profitable. According to Arun Kumar, a director of Standard & Poor's, ''Breaking even in 12 months is not impossible but very difficult.''